Technologically new payments mechanisms have often been frustrated by the famous ‘chicken or the egg’ conundrum. Until there are lots of consumers with the new devices, merchants are reluctant to pay the cost of installing new readers for the technology. Similarly, consumers are reluctant to carry new devices until there are enough merchants to accept them. Despite increasing fraud associated with criminals ‘stripping’ the information from magnetic-stripe cards, the card associations have failed to deploy more secure alternatives. Smartcards are just one example of the devices that have failed to gain traction. The invention described here addresses this conundrum.
RFID technology is very broadly used today. RFID devices are currently used to identify: cattle; packages; owners of vehicles and for payments (e.g. the 5 MM active Exxon Mobil SpeedPass users). The technology is available in two forms, active and passive RFID devices.
E-Z Pass is an example of an active RFID device. In order to permit cars to be recognized at speeds up to 200 MPH, such active RFID devices have a battery and in response to a signal from readers, transmit a signal that can be recognized from a distance of 40 meters from the reader. At such distances, it is important that only the intended vehicle is charged for the toll. As a consequence, a lot of technology is focused on tracking a particular vehicle within a specific lane of traffic.
One large implementation of RFID technology is connected to passive devices. Passive RFID devices have no battery. These devices contain chips and an antenna. When the passive RFID device is in proximity of a reader, usually within inches but can be feet away, the chip is activated by an RF signal sent by the reader. The reader's broadcast RF signal is captured by the passive device's antenna and generates sufficient electrical energy to activate the chip. The passive RFID chip is hardwired to respond in a particular way, to be recognized by the reader.
Payments using RFID devices are beginning to emerge, though there are two impediments: merchants have balked at the $5,000-15,000 cost of installing RFID readers, because there are few RFID enabled consumers; and, issuers are reluctant to distribute tokens (at a cost of $8 each) unless there are enough merchants to generate sizeable payments.
The leading RFID payments providers include EZPass, Speedpass, 2Scoot and Freedompay. The primary goals for these entities are: to broaden as quickly as possible the number of merchants that accept RFID tokens; and to permit consumers freedom to choose multiple payment alternatives with a single token.
Many of the Exxon Mobil gas stations are Speedpass enabled. In addition, a number of McDonalds restaurants in the Chicago area are now using Speedpass payments, and one grocery store chain began piloting Speedpass in late 2002. However, even with all this new development, RFID payments are still rare.
Other drawbacks may also be present.